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59 Cards in this Set

  • Front
  • Back
definition of cartel
agreement among firms to restrict output to achieve monopoly power
What is the Prisoner's Dilemma?
A game in which payoffs are such that the choice set that maximizes total welfare fails to maximize personal/individual welfare
What are 3 random cartel facts?
1. illegal in US
2. firms split monopoly profit (if rules obeyed)
3. product type doesn't matter
what is mutual interdependence?
The actions of one firm DO affect the actions of other firms
What is derived demand?
the demand for inputs that exists because of the demand for outputs they produce.
(increase demand for big mac's, increase in demand for products to make big macs)
What is the income effect?
(what do W and L do?)
As the wage rate increases, labor decreases
What is a monoposny?
a firm is the only employer of workers (they are "buying" employment)
What is exploitation of labor?
When MRPl (marginal revenue product of labor) is greater than the wage rate
What is a union?
a cartel of workers
What does a union work to prevent? What is a union's goal?
A union works to prevent exploitation of labor. Their goal is to maximize wage AND max. employment... they want to keep W and L as high as possible
What is a strike?
A collective refusal to work under the current conditions.
What is the Free Rider Problem?
you can't prevent someone from consuming without paying
What is a subsity?
The income transfer to a producer
What are three characteristics of a oligopoly?
1. few mutually interdependent firms
2. (few firms b/c) high barriers to entry
3. imperfect information
What is an implication to the oligopoly's high barrier to entry?
MIGHT ger long rung economic profit to be greater than 0
What is an implication to imperfect information?
stragetic cheating is possible (can form aggreement)
What are incentives to form a cartel?
several firms get together and act as a monopoly. They all split some profit, which is better than no profit.
What are three factors that facilitate cartel enforcement? (ways to make it easy to catch a cheater)
1. homogeneous products (cheating on graph = change in price)
2. smaller number of sellers, easier to catch cheater
3. many small buyers
What are three effects of hiring a worker?
1. marginal product of labor (MPl) >0 so Q increases
2. total revenue (TR) increases
3. total cost rises
What are three factors that increase demand of labor?
1. increase demand output
2. increase price of substitute inputs
3. increase marginal productivity of workers
What are two factors that decrease price elasticity for labor?
1. decrease Ep for output
2. decrease # of substitute inputs
What are the three economic systems?
1. Pure/Laissez faire Capitolism
2. Socialism
3. Communism
demand L =
What does MFC = in perfect competition?
what does MFC = in a monopoly?
change TVC
What does MRPl = at L*?
What are public goods??
one person's consumption doesn't reduce ability of others to consume it
What are black markets? What are they associated with?
a market in which goods are bought and sold illegally -- they are associated with price controls
What is the substitution effect?
When the rage rate increases, individuals recognize that the opportunity cost of leisure has risen, so bob chooses to replace working for leisure and so they work more.
What is antitrust?
the department of the government that regulates monopolies
What is game theory?
the analysis of economic strategies in order to predict how firms will behave
What action could you take to increase demand output?
advertise union made products
What action could you take to increase price of substitute inputs?
lobby for minimum wage increases (increases D of MY labor -- making surplus of labor)
What action could you take to increase the marginal productivity of workers?
an apprenticeship program
What action could you take to decrease price elasticity for output?
lobby for import restrictions
What action could you take to decrease the number of substitute inputs?
lobby for tougher immigration laws (imm. will work for a min. wage, employers will bring them in in a strike)
In a cartel, how can total producer welfare occur?
by maximizing profit! (obey obey) -- add box numbers together and whichever one has the most profit, thats it
in a cartel, how can individual welfare occur?
maximize profits by cheating (for own self interest)
In a cartel, how can consumer welfare by maximized?
when everyone in the cartel cheats
What are externalities?
benefits or costs of an individual's actions that the individual doesn't recieve or pay
What is a positive externality?
when private benefit is less than social benefit (flies and neighbors)
What is a negative externality?
when private cost is less than social cost (negative cost to people beyond the firm)
What are the three economic questions?
For whom?
What is the definition of economic systems?
part of the social system that determines the answers to the three econ. questions.
What 4 factors are associated with pure/ laissez faire capitolism?
1. private people given all resources
2. role of gov. limited to two things:
a. define/enforce property rights
b. provide national defense
3. free enterprise
4. competitive markets
What occurs in socialism?
most non-human resources are owned by the state (a central planner)
- official collects all resources to use as they see fit
-gov. takes $$$ from people's incomes
What is an effect of socialism?
people don't work as hard and they leave the country.
What occurs in comminism?
nearly all resources are publically owned.
What is commonpool?
where everyone takes what they want
What is the commonpool problem?
the arrangement where property rights are nonexistant or poorly defined
What is the role of the government in the US?
mixed capitalism!
What two things does the gov. do in mixed capitalism?
1. define and enforce property rights
2. they correct market failure
What is market failure?
a situation where socially optimal amount of good or service is NOT produced
What are the two types of market failure?
1. public goods
2. free rider problem
What is the definition of marginal revenue product of labor?
it is the additional revenue associated with a one unit increase in L (in opposed to Q) -- how much $$ you make from hiring a worker
What is the definition for marginal factor cost?
it is the additional cost associated with a one unit increase in L -- how much $$ it costs to hire a worker
What action could the government take for a positive externality?
the gov. could subsidize to a producer so its output goes up
What action could the government take for a negative externality?
the gov. taxes. -- that moves money away from the producers so their output goes down